Senator Tim Scott asked whether the Securities and Exchange Commission was “asleep at the wheel” during big crypto bankruptcies that resulted in the loss of millions of dollars in customer funds.
Many politicians and witnesses at a hearing investigating the crypto market crash targeted the US Securities and Exchange Commission and its chair, Gary Gensler.
Ranking member Tim Scott, speaking at a Senate Banking Committee hearing on “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets” on February 14, criticised SEC head Gensler for avoiding testifying by instead making “rounds on the morning talk programmes.” The SEC, according to the South Carolina senator, had not provided “the least bit of direction,” potentially resulting in a lack of investor protection for bankrupt enterprises such as FTX, Terra, BlockFi, Voyager, and Celsius.
Witnesses at the meeting recommended various options for lawmakers trying to regulate cryptocurrency. Lee Reiners, policy director of the Duke Financial Economics Center, urged that Congress consider legislation to “carve out crypto” from the Commodity Futures Trading Commission’s authority and classify it as a security under the SEC’s exclusive jurisdiction. Linda Jeng, chief global regulatory officer and general counsel of the Crypto Council for Innovation, testified that the lack of a clear federal regulatory framework on cryptocurrency contributed to a lack of investor protection and ambiguity among firms, saying:
“Despite the fact that digital assets are increasingly being recognized as securities, the SEC has not launched any formal rulemaking process to revise securities rules that are decades old to account for the distinctive qualities of digital assets that are declared to be securities.”
Yesha Yadav, a law professor at Vanderbilt University, shared some of Jeng’s concerns about building a federal framework for crypto, but also recommended a self-regulation regime in which exchanges might monitor themselves as a supplement to public regulation. Firms that fail to comply with the rules may face financial fines.
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